Tom Donohue, president and CEO of the U.S. Chamber of Commerce, gave his annual “State of American Business” speech this week. It came with the usual complaints about how corporations are “burdened” by important public protections needed to hold corporations accountable for wrongdoing, such as access to the civil justice system.

One example of such “burdens” according to the U.S. Chamber and it’s so called Institute for Legal Reform is an individuals’ right to turn to the court system when they suffer losses at the hands of Big Business. The U.S. Chamber has continuously sought to restrict consumers’ right to go to court. Individuals already face numerous and unreasonable obstacles to access the courts, but based on Donohue’s speech, the industry still wants more. And it is seeking to combat any potential advances that would restore some of our rights as consumers in the marketplace.

One such advance which the U.S. Chamber and its financial industry friends are apoplectic about, are some recent developments at the Consumer Financial Protection Bureau (CFPB). The CFPB is in the midst of studying one of industry’s more forceful tools to restrict consumers’ rights: the use of forced arbitration and bans on class actions in financial services contracts.

Arbitration clauses are the terms in corporate contracts that eliminate the right of customers and employees to a jury trial, and direct individuals to resolve disputes with industry in a secret proceeding called arbitration. Most of these clauses also forbid participation in class actions. That means that consumer claims against companies must be arbitrated on an individual basis, a method that is often impractical for consumers to pursue. As a result, consumers are unable to have their day in court when harmed. And if they can’t seek redress, the result is that companies rarely have to answer for predatory or even illegal practices.

Last month, the CFPB announced preliminary findings from its ongoing arbitration study launched in April 2012. This first of two reports included data related to credit cards, checking accounts, payday loans and prepaid cards. Almost simultaneously with the CFPB’s report, an industry law firm released a suspiciously well-timed document commissioned by the U.S. Chamber. The report sought to denounce the usefulness of class actions and cast doubt on the CFPB’s findings. But in truth, there was no competition when it came to credibility.

The CFPB material effectively confirmed much of what we know about how forced arbitration and class action bans impact consumers in the real world. The agency’s empirical findings were powerful. Here are some highlights:

• Large banks use arbitration clauses in their credit card and checking account contracts.

• More than 90 percent of the contracts with arbitration clauses also ban consumers from participating in class actions.

• Big banks more frequently include arbitration clauses in consumer contracts for credit cards or checking accounts than do community banks or credit unions.

• Few consumers use the arbitration system, and most will accept class action settlements above using private arbitration. Consumers simply prefer the courts.

The U.S. Chamber would prefer to disregard the CFPB’s data and other undisputed evidence that restricting consumers’ access to the court system harms them and the financial marketplace in general. But it can’t. Once the agency completes the study it has the authority to restrict or outright ban forced arbitration if it’s for the protection of consumers and the public interest.

As its long history of attempts to eradicate consumer rights shows, the U.S. Chamber believes that potential CFPB action to protect the public’s interest will not serve the interest of the companies that fund it.

But despite the U.S. Chamber’s denials, the CFPB’s cold hard facts show that a strong rule to restore corporate accountability and access to the courts is good for consumers and the marketplace.

Christine Hines is the consumer and civil justice counsel for Public Citizen’s Congress Watch division.

1 Comment

I am amused about the naietvy being demonstrated by the CFPB that their zero-zero mortgage pricing will do anything to normalize price comparisons from one company to another. What third party fees will be excluded? will the consumer really understand that a zero-zero mortgage with NO prepayment penalty is not the same as a zero-zero mortgage with say a 7 year prepayment penalty? Will the consumer understand how to compare a zero-zero mortgage with a 30% down payment requirement to a mortgage with points and fees that has a different down payment requirement? Just like the APR nonsense this does little if anything to give the consumer a way to compare pricing of mortgages from multiple lenders.The fact that the CFPB included an option for originators to NOT provide a zero-zero option if the consumer is unlikely to qualify for that option clearly indicates that they understand that lenders may have FAR more rigid underwriting criteria for a zero-zero mortgage. But in reality it is an issue that simply is not of much importance to almost 1/2 of all borrowers. According to the National Association of Realtors studies 48% of home buyers said they NEVER even TALKED to a second mortgage company. This was verified by a separate survey conducted by LendingTree in the fall of 2011. So if consumers don’t have pricing form to sources to compare the CFPB zero-zero price will have little value except the COST of generating these additional quotes .maintaining the records to prove the lender is in compliance with this regulation, etc. WILL be passed on to the borrower in the form of higher fees.